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Key Takeaways

• Texas is operationally strong today, but grid reliability will increasingly depend on whether the state can add power fast enough, expand transmission capacity, continue deploying storage, and manage rising demand from large industrial users.
• For data center developers and investors, the challenge is no longer limited to site selection. Other obstacles include securing reliable power, navigating local permitting, managing public perception, and addressing resource concerns early.
• Investments are following the places where reliability and load growth intersect. Capital is moving not only into power generation, but also into the broader systems required to support it.

Texas has long occupied a unique place in the U.S. energy economy. It is the nation’s largest producer of oil and gas, the leading state for wind generation, a growing force in solar and storage, and increasingly one of the most important markets for data center development. That combination makes Texas more than a large energy state — it’s a preview of where energy, infrastructure, and digital demand are heading nationally.

Against this backdrop, attorneys at �鶹ֱ�� & Lardner’s Texas Media Roundtable, held in Houston earlier this month, explored the challenges around transformations in the state related to grid reliability, the rapid expansion of data centers, and the capital investments needed to support both.

The panel — featuring �鶹ֱ�� Energy & Infrastructure partners Eric Blumrosen, Scott Ellis, Daniel Farris, Jessica Mason, and Nicholas Peters — examined how Texas’ position of strength is being tested by the unrelenting pace of change. As electricity demand rises and infrastructure needs become more complex, Texas is being forced to answer questions that other jurisdictions will likely face next.

Grid Reliability: Progress Made, Pressure Rising

One of the clearest takeaways from the discussion was that the Texas grid is in a better position today than it was a few years ago, with material improvements since Winter Storm Uri in 2021. Reforms have strengthened readiness and day-to-day performance, but the reliability question is shifting from whether the system can withstand the next crisis to whether it can keep pace with what comes next.

Load is growing faster than firm capacity can be added. Demand is rising quickly, driven in large part by AI infrastructure and data center development. At the same time, Texas is still working to add firm generation fast enough to support that growth over the long term.

As a result, policymakers, utilities, and market participants are focused not only on resilience during extreme events, but also on longer-term capacity planning to ensure the grid can support sustained economic and industrial growth.

Panelists described Texas’ generation mix as relatively diversified with approximately 60% fossil fuels, 25% wind, 10% solar, and 7% nuclear. This mix reflects Texas’ practical approach to reliability:

• Natural gas remains the backbone of dispatchable generation.
• Wind continues to be a major source of power and investment.
• Solar is growing rapidly.
• Battery storage is helping fill the gap between intermittent renewable generation and the need for more reliable power. This is one of the most important areas for innovation and investment.
• Nuclear is strategically important and remains part of the longer-term conversation, but meaningful expansion will take time and it is too slow to solve near-term issues and the immediate mismatch between demand growth and supply additions.

The discussion also emphasized how interconnected the state’s energy systems have become. Power outages or grid stress are not confined to electricity consumers but actually affect energy production itself — for instance, wells may be shut in if electricity is unavailable, gas cannot be compressed and moved into gathering systems, and refining and downstream operations can be impaired. This circular dependency increases the economic consequences of reliability problems.

Data Centers: Driving Growth, Transforming Demand

Data centers are becoming one of the most significant new sources of electricity demand in Texas and are reshaping the state’s load forecast. By the end of the decade, data centers could account for roughly 10% of all Texas power consumption, even when anticipated new generation is taken into account.

Part of this is due to the size of projects increasing dramatically and structurally changing the concentration of electricity demand. Facilities that only a few years ago might have required 20-25 megawatts are now being planned on a much larger scale, with newer AI-related, gigawatt-sized campuses increasingly part of the development landscape. 

With more projects in development, data centers are creating strain not just on the grid, but on labor and supply chains. Demand for contractors and skilled labor, delays in equipment procurement, and pressure on supply chains for turbines, generators, cooling systems, and engineering services all lead to delays, with 60% of data center developments at least three months behind schedule.

Developers also have to navigate public perceptions and misconceptions on these projects’ environmental impact. For instance, data centers don’t necessarily consume massive amounts of water. Many newer facilities rely on closed-loop cooling systems that use non-potable water. Much of this water can be treated and returned to the system, making actual consumption materially lower than expected.

Developers are working with local governments as infrastructure partners, not just power consumers. Not only are they using more efficient cooling technologies, they are investing in new transmission and power infrastructure, creating tax revenue, employment opportunities, and engaging in community outreach.

Capital Investment: Supporting Reliability, Shaping Infrastructure  

Without a doubt, rising electricity demand from data centers and broader industrial load is affecting power markets and reshaping where capital is being deployed. Investment is no longer just about commodity cycles. It is increasingly about whether an asset can support reliability and serve new large-scale load.

Capital is flowing across the energy value chain, toward the assets needed to generate, move, and manage power more effectively. Areas drawing increased attention include natural gas production and midstream infrastructure, solar and battery storage, transmission, LNG, and nuclear and other longer-term firm generation opportunities.

Natural gas remains the most important near-term investment area as it supplies roughly half of Texas’ electricity generation and remains the primary dispatchable fuel source. East Texas in particular is seeing increased investment because of its gas-rich resources.

But production growth alone is not enough. Capital is also needed to move gas and power into the grid. Investments are being pulled toward assets that help midstream infrastructure such as gathering systems, compression, pipeline connectivity, and transmission infrastructure for power delivery.

Looking Ahead

The roundtable’s broader message was straightforward: Texas is not facing three separate challenges. It is managing one interconnected transition, where reliability, digital infrastructure, and investment are becoming part of the same story.

For companies operating in or investing in Texas, that means the next phase of growth will depend less on identifying opportunity than on navigating execution. The state remains well positioned, but success will turn on whether market participants can align infrastructure planning, regulatory strategy, and capital deployment with the speed of demand growth.